Do you have a lot of debt? Are you struggling to pay them off? Well, you are not alone who repents after borrowing money. As the saying goes, the proof is in the pudding. You realise that the debt is expensive only after falling behind on payments.
At the outset, it seems easy to get rid of debt, but when the due date comes, your pocket blows up and leaves you with little money for other expenses, resulting in borrowing more money to get by. The cycle goes on, and you eventually find yourself in a debt spiral.
Getting rid of debt is not a cinch. There are mainly two methods that people use – debt avalanche or debt snowball. Which of the methods you will use to tackle your debt obligations depends on the amount of money you owe, interest rates, the type of debt and the like.
Many of you find it harder to choose a particular type of debt method as each of them has its own merits and demerits. You can contact a finance advisor to understand how you can settle your dues without further ado.
Essential tips to settle your debt as soon as possible
Here are some of the tips you should follow to get rid of debt:
-
Create a budget
First and foremost, you should create a budget, as it will let you get an insight into the true picture of your finances. You cannot settle your debts unless you have enough money. Understand how much cash is coming in and how much is going out, and then figure out how you can release more cash by cutting back on your expenses.
Debt settlement in a short period of time is possible only when you try to live off a lean budget. The more money you chip away, the faster you will get rid of debt. To make a budget that works for you, you will have to look over your bank statement for the previous couple of months. Just creating a budget will not help you as you will need to constantly peruse your spending.
-
Find a payment strategy
Once you have created a budget, the next step is to find a payment strategy that helps get rid of debt. As you know, you can use either debt avalanche or debt snowball method; you will have to decide which one works best for you. The debt avalanche method helps you get rid of debts with the highest interest rates first, and you keep paying down the minimum balance on other less expensive debts. However, remember that interest will keep accruing on your debt.
The other method is debt snowball, which allows you to pay off the smallest debt first. Instead of paying off an expensive debt like mortgages and auto loans first, clearing dues of payday loans and cash loans to your door will keep you motivated throughout the debt settlement journey.
It has a psychological impact that keeps you stuck to your debt payment plan. However, this plan also has certain drawbacks. Before you choose any of the plans, you should understand their benefits and drawbacks.
-
Pay more than the minimum balance
As you know, if you pay down the minimum balance on your debt, the interest will keep accruing. It means there will be much more pressure on your pocket. It is always recommended that you pay more than the minimum amount. The more money you pay down, the better it is.
You will see less accrued interest. You can consult your lender and ask them how this will have a better impact on your financial condition. Your lender may be lenient with accrued interest rates and late payment fees if you try to pay down more than the required minimum balance.
-
Stop your credit card spending
Getting rid of debt can take a lot of time. Not to mention, you will have to stick to your plan. If you continue to spend money frivolously, you will end up taking up too much debt. As a result, you will never be able to get out of an endless circle of debt.
Freeze your credit card. Just forget the fact that you have a credit card. You should try to use as much cash as possible to make a purchase. When you use cash for all your purchases, you have a clear idea of how much money you are spending. This will help you prevent overspending.
If you use a credit card, make sure you pay off the balance in full on the due date. You will have an interest-free period after the bill is generated. A rule of thumb says that you should pay off the balance within that period so you can avoid paying interest.
Bear in mind you will be charged interest even if you make the minimum balance. Settle your dues in full before the bill payment date. If your credit allows you to clear the payment in instalments, make sure to have checked the terms and conditions of your credit card. Not all credit cards allow for instalment payments.
-
Use a balance transfer credit card
Some direct lenders provide a balance transfer credit card to help you pay off your dues within the interest-free period, which could be 12 to 18 months, depending on the balance transfer amount and the lender’s policy.
Balance transfer credit cards can be challenging to qualify for, as you should have a decent credit rating. Further, if you do not clear your dues within the interest-free period, you will end up paying a lot of money as interest.
-
Change your financial habits
It is crucial to change your financial habits. Even if you have gotten rid of debt, it is always suggested that you do not repeat those mistakes so you do not fall again into debt. Be careful about your spending. The more cautious you are with your purchase, the better it is.
Try to spend cash as much as possible. If you use your credit card, track the payment. Make sure to add that expense to your budget to know how much you have already spent. This will prevent you from falling into debt.
The final word
Setting the outstanding dues is not a cinch, especially if you have taken on too much debt. However, there are some of the ways to get rid of them. First off, you should use either debt avalanche or debt snowball method. Evaluate your financial situation and then decide which will work for you.
In addition, you should consider a balance transfer credit card, create a budget, spend by cash, and above all, change your financial habits. If you keep repeating those mistakes, you will fall into debt again.